We all know corruption is bad. We’ve written extensively here how it has economic (not cultural) underpinnings and how it costs businesses by creating an environment defined by uncertainty, as well as disrespect for rule of law and property rights. In all, as I always say, businesses should not participate in corruption because while it may be beneficial in the short term, they ultimately dig themselves a hole out of which it will be hard to get out.
Now try telling this to some firms in the U.K.
According to a recent law firm report,
According to International business attitudes to corruption, published today by risk consultancy Control Risks and law firm Simmons & Simmons, 22 per cent of UK businesses thought they had failed to win a contract abroad in the past 12 months because a competitor has paid a “kickback”.
The report surveyed 50 companies in seven countries: Brazil, France, Germany, Hong Kong, the Netherlands, the UK and the US. Companies from Hong Kong were worst affected, with 66 per cent of respondents believing they lost business as a result of rivals paying inducements.
Construction seems to be one of the most corrupt sectors.
This underscores the dilemma. How do you convince companies not to participate in corruption when their competitors can put them out of business by doing it? We can talk about changing institutions and laws, but that does not happen overnight. In the meantime, what should you do? Now, some would say that we should just let companies bribe and get the contracts they think they deserve. I would suggest exploring ways of sticking to transparent business practices — business leadership has a role to play here.
In all, it seems that corruption, if allowed to persist, may drive out ‘good’ firms and allow ‘bad’ firms to stay in the market. Gresham’s Law has been criticized on a number of occasions, but could it be that it is applicable afterall?
Published Date: October 10, 2006